Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why BYD Could Reshape the Global Auto Industry
Transcript
- Lucas: BYD just predicted that 80 percent of new car sales in China will be electric by 2030. That's not a forecast from some outside consultancy — that's coming from the company that sold 4.2 million vehicles globally last year, most of them fully electric or plug-in hybrids. Luna: Four point two million — that's more than Ford sold globally in 2025. And Ford has been making cars for over a century. Lucas: Exactly. BYD surpassed Ford in global sales volume last year, and it's closing in on General Motors. The fascinating thing isn't just the volume — it's the trajectory. In 2020, BYD sold about 420,000 vehicles. Five years later, ten times that. Compounding at roughly 58 percent annually. Luna: Compound annual growth rate of 58 percent is almost unheard of at that scale. Most automakers would kill for 8 percent. Lucas: And the margin profile is what makes the stock interesting. BYD's net margin last year was around 5.5 percent — not enormous, but for a company selling at an average transaction price below $30,000, that's real earnings power. The market cap sits at about $112 billion, which puts it ahead of Ford, General Motors, and Volkswagen by that measure. Luna: So the market is already pricing in that BYD keeps winning. But the 80 percent prediction — is that realistic? Lucas: Let's look at the numbers. In 2025, battery electric and plug-in hybrid vehicles made up roughly 48 percent of new car sales in China. So BYD is saying that share nearly doubles in four years. That implies annual EV growth of about 14 percent compounded — which actually seems conservative compared to the 35 percent CAGR we saw from 2020 to 2025. Luna: So BYD's internal forecast might actually be underpromising. Interesting. What does that mean for traditional automakers? Lucas: It's a brutal math problem. Legacy automakers like Volkswagen and Ford still generate most of their profits from internal combustion engine vehicles. As China — the world's largest auto market — pivots to EVs, those ICE profits shrink. And most traditional automakers are still losing money on every EV they sell. Luna: Ford's Model e division lost about $5 billion last year, if I remember correctly. And that's after years of investment. Lucas: Right. Ford's EV unit lost roughly $5.1 billion in 2025, and GM's Cruise and EV programs together burned through about $4 billion. BYD, by contrast, turned an operating profit of about $6.5 billion last year. The difference is vertical integration. Luna: Explain that piece — because most people hear 'vertical integration' and think 'they make their own stuff.' What's the actual advantage? Lucas: BYD manufactures its own batteries — the Blade battery — which is a lithium iron phosphate chemistry that's cheaper and safer than the nickel cobalt manganese batteries Tesla and others use. They also make their own semiconductors, motors, and even the infotainment systems. That means their cost per vehicle is structurally lower. Luna: So when raw material prices spike, BYD feels it less because they capture the margin at every step? Lucas: Exactly. And they've been aggressive on passing those savings to consumers. The Seagull, their entry-level EV, starts at around $10,000 in China. That's not a stripped-down golf cart — it's a real car with a 250-mile range. No Western automaker can match that price point and still make money. Luna: That's the kind of disruption that kills entire business models. But BYD has challenges too — tariffs, geopolitical risk, brand perception outside China. Lucas: Absolutely. The European Union imposed additional tariffs of 17 percent on Chinese EVs in late 2024, and the U.S. has a 100 percent tariff. So BYD is building factories in Hungary, Brazil, and Thailand to get around that. They're also targeting Southeast Asia aggressively — they have about 25 percent market share in Thailand's EV market now. Luna: So the strategy is: dominate China first, then export via local manufacturing. That's what Japanese automakers did in the 70s and 80s. But those companies weren't facing this level of geopolitical friction. Lucas: True. And BYD's brand outside China is still growing. In Europe, it's seen as a value option, not a premium one. But that might be fine — BYD doesn't need to be BMW. It just needs to sell a lot of cars at decent margins. Luna: From a stock-picking perspective, what's the bull case? You're paying roughly 17 times earnings for BYD, which is cheap relative to Tesla's 60-plus multiple, but not cheap for an automaker. Lucas: The bull case is that BYD isn't just an automaker — it's a battery company that happens to make cars, and an electronics manufacturer that handles supply chains for Apple and others. The auto business is the growth engine, but the battery and component businesses provide diversification. If BYD can maintain 15 percent annual revenue growth and expand margins to 7 or 8 percent, you could see earnings double in four or five years. Luna: And the bear case? Lucas: The bear case is that competition in China intensifies — companies like Xiaomi, NIO, and Geely are all pushing hard — and BYD's cost advantage erodes as everyone moves to LFP batteries. Also, geopolitical tensions could cut off access to key markets. If Europe slaps on more tariffs or the U.S. keeps them out, that limits the addressable market. Luna: So it's a high-conviction bet on the EV transition happening the way BYD expects, and on the company executing internationally. Not a sure thing, but the odds seem skewed in their favor. Lucas: If our money conversations have helped you think about a decision differently, the way these shows stay ad-free is listener support. You can find us at buy me a coffee dot com slash fexingo. Luna: We don't run ads because we don't want to interrupt the thinking. If you find value in that, a coffee helps keep the lights on. Lucas: Back to BYD — one final point. The 80 percent forecast isn't just about cars. It implies massive changes in energy infrastructure, battery recycling, and the grid. Investors who understand those ripple effects might find opportunities beyond just the automakers. Luna: Are there specific suppliers or battery recyclers you're watching? Lucas: Companies like CATL — the world's largest battery maker — and smaller players in the lithium and graphite space. But that's a whole other episode. Luna: Alright. Next time we'll look at the battery supply chain. For now, thanks Lucas. Lucas: Thanks Luna.